Morgan Stanley Chairman Mack to Cede Role to Gorman, Become Senior Adviser

By Christine Harper and Donal Griffin -
Sep 15, 2011

John Mack will cede his chairman
role at Morgan Stanley to Chief Executive Officer James Gorman
on Jan. 1, capping a 35-year career at the firm that included
record losses and a government bailout.

Mack, 66, is completing the two years he promised to serve
in the job when he ceded the CEO title to Gorman, 53, at the end
of 2009. He will leave the board to become a senior adviser, the
New York-based company said yesterday in a statement.

Morgan Stanley, the sixth-biggest U.S. bank by assets, more
than tripled net income last year, boosted by gains in both the
investment bank where Mack spent most of his career and the
retail brokerage that Gorman ran when he joined in 2006.

“From the board’s point of view, Gorman has proved himself
as an executive,” said Brad Hintz, an analyst at Sanford C.
Bernstein & Co. who recommends buying Morgan Stanley (MS) stock and
once served as its treasurer. “He’s embraced both sides of the
firm, and the firm doesn’t have the internal dissension issues
that existed before.”

Morgan Stanley was the world’s largest securities firm when
Mack returned after a four-year absence in June 2005 to replace
CEO Philip J. Purcell, who left under pressure from investors
and employees. Mack’s efforts to boost trading revenue as well
as businesses including private equity and mortgage-bond
underwriting backfired when the company posted its first
quarterly loss in 2007 and the global credit crunch toppled
smaller rival Lehman Brothers Holdings Inc.

Taxpayer Bailout

The company sold stakes to China Investment Corp. and
Japanese bank Mitsubishi UFJ Financial Group to raise capital
and converted to a bank in 2008. Morgan Stanley also took $107
billion of Federal Reserve emergency loans, more than any other
company, during the financial crisis.

“His contributions to the firm are innumerable, but none
was more critical than the leadership he provided in guiding
Morgan Stanley through a financial crisis that claimed many of
our peers,” Gorman said in the statement. “For more than 30
years, he has helped to define the firm’s distinctive culture
and build our franchise across the globe.”

Mack said in 2009 that he considers his own greatest
accomplishment to be leading the firm through the 2008 crisis,
which wiped out Lehman Brothers and led Bear Stearns Cos. and
Merrill Lynch & Co. to be sold to larger companies.

“I said to my wife, when things were really crazy, ‘You
know, there’s a chance I will lose this firm,’” Mack said in a
2009 interview. “But I would rather be doing this than sitting
on a beach reading a book.”

Strategy Shift

Richard Bove, an analyst at Rochdale Securities in Lutz,
Florida, said that Mack changed strategy too many times at
Morgan Stanley as he reacted to circumstances.

“It created a company which had no clear vision of where
it was going,” Bove said. “Overall, I would have to say his
tutelage of the company was not effective.”

In giving Gorman the chairman job, Morgan Stanley is ending
a two-year experiment in separating the two positions. Bank of
America Corp. and Citigroup Inc., the biggest- and third-biggest
U.S. banks by assets, have separated the two jobs. JPMorgan
Chase & Co. and Goldman Sachs Group Inc., the second- and fifth-
largest U.S. banks, have a single executive serving both roles.

The company gained $1.11, or 7.2 percent, to $16.59 in New
York Stock Exchange composite trading at 4:15 p.m. and was the
second biggest gainer in the 81-company Standard & Poor’s 500
Financials Index after Lincoln National Corp. Morgan Stanley
stock is still down more than 40 percent this year.

“I don’t know what his legacy will be,” said Kenneth Crawford, a senior portfolio manager at Argent Capital
Management LLC in St. Louis, which oversees about $1.2 billion
and doesn’t own Morgan Stanley stock. Mack “came back and then
allegedly resurrected Morgan Stanley and then took enough risk
that his company was on the brink.”